Monday, May 23, 2005

OPEC calls for more refining capacity

The FT reports that Sheikh Ahmad al-Fahd al-Sabah, Kuwait’s Oil Minister and holder of the rotation OPEC presidency, has called for increased investment in refining, attributing high oil prices to downstream bottlenecks. His argument is fairly close to the argument Saudi Oil Minister Al Naimi made at CSIS last week.

The FT quotes al-Sabah thusly:

"What's needed now is joint investment in both upstream and downstream operations. To make downstream investment attractive to international oil companies it should be tied in to upstream investment".

Which is interesting, because it raises the prospect of some kind of investment conditionality being attached to E&P contracts. Makes sense, really: what’s the use of raising the oil if you can’t process it?

UPDATE

Saudi Aramco is investing in several joint venture refineries in Asia which will be entitled to a guaranteed supply exempt from OPEC quotas. So Aramco gets guaranteed buyers, establishes strong strategic linkages with rising Asian economies, and gets to stick two fingers up at the US (which turned down Ali Naimi’s offer of two refineries). It’ll be interesting to unpick the various JVs and see what deals Aramco cut with the Asian importers.

That said, the 3 refineries that Aramco is building (worth US$50bn) are intended primarily for export. Which presumably means that the US and EU are still going to be able to buy petroleum products from the Kingdom – but they’ll be subject to OPEC quotas.